Stake increase in subsidiary…
Praj Industries Ltd has increased its stake in its Mumbai based subsidiary
Neela Systems Ltd by 9.8% for | 12.5 crore. Praj had acquired a 50.2%
stake in Neela Systems at | 64 crore on January 6, 2012. This acquisition
would be funded by the internal accruals of the company. According to
the Praj management, it would increase its stake in Neela Systems further
within three years. We believe the acquisition is EPS accretive for Praj led
by the higher profit margins of Neela. We maintain our target price of | 58
and upgrade the stock from HOLD to BUY.
Neela Systems is a Mumbai-based company and operates in the water
treatment and modular process systems with focus on biotech,
pharmaceuticals, life sciences and cosmetic industries. The company
operates in a niche market in India and Praj plans to increase its exposure
in foreign markets by capitalising on Praj’s association in Australia, Brazil
and South Africa. Currently, Praj generates ~45% of its revenues from
international orders. We expect this to get scaled up as the company
increases its stake in Neela and takes its offerings to international markets.
Neela Systems reported net revenues and earnings of | 93.7 crore and
| 12.5 crore, respectively, in FY12.
With Neela being an EPS accretive business and Praj’s revenue and
earnings growth expected to improve further as the order from Australia
(estimated to be ~A$20-30 million for which Praj has begun its proceed
work) kicks in by FY14E, we expect earnings to grow at 14.5% CAGR in
FY12-14E. We maintain our target price of | 58 and upgrade the stock to
BUY.
http://content.icicidirect.com/mailimages/ICICIdirect_PrajIndustries_QuickComment.pdf
No comments:
Post a Comment